Getting Paid: How to Determine Your Fee

1 August 2017487 viewsOne Comment

Stephen Simon

This column is written for anyone engaged in or interested in statistical consulting. It includes articles ranging from what starting a consulting business would entail to what could be taught in a consulting course. If you have ideas for articles, contact the ASA’s Section on Statistical Consulting publication’s officer, Mary Kwasny.

If you are an independent statistical consultant, one of the earliest choices you must make is how to bill for your services. You can either bill by the hour or bill by the project. There are trade-offs between the two approaches.

I like billing by the hour. It doesn’t require a lot of up-front planning. You don’t have to worry about clients sneaking extra work in by changing the scope of the project. In fact, you are hoping your work is so impressive your client will want you to do even more.

A survey published in a 2006 newsletter of the Statistical Consulting Section (v23.1) put the median consulting rate at $130 per hour. In 2017, you should ask for more, especially if you have advanced degrees and/or specialized experience.

It is okay for you to add the time you travel to and from meetings with your clients to your total bill. I’ll charge for travel if it is more than 15 minutes, but not if I can stop by easily on the way to or from my regular job.

General professional development is on your own dime. You can, however, charge for the time you spend learning new software and new statistical techniques if those are specifically required by your client and your client is aware of this and this is but a small fraction of your total hours. Don’t use your client to get a head start on that data science certificate you want.

Your clients may not like the open-ended nature of billing by the hour, and you may end up having to place an upper bound on the number of hours you will need to complete the project. This combines the worst of hourly billing and flat billing. If you exceed your cap, you eat the cost, but if you finish early, you don’t get a bonus.

I push for a soft ceiling, where I promise to not exceed a certain number of hours without checking first. It also helps to show your clients regular evidence of your progress so they don’t think they’re throwing money down a black hole.

You don’t have to charge the same amount for each client. I offer a break for graduate students because I remember how tight money was when I was slaving away on my own PhD. You can also offer discounts for clients who bring you a lot of business, because one client with 20 billable hours per week is a lot less work than 10 clients with two billable hours per week apiece.

You can also charge more for clients who make special demands. If your client insists on owning any programming code you produce or requires you to use a software program they love and you hate, a 25–50 percent hike in your standard consulting rate is not unreasonable.

Take some time at the beginning of each new year to think about increasing your hourly rate. Like a fine wine that gets better with age, the consulting you do gets more valuable as you acquire more experience. You might need a bit of negotiating with current clients. Or you can tell them they are getting a “long-term customer” discount and only charge the increased rate for new clients.

Billing by the project is more work up front, but you can make a lot more money this way if you play your hand well. Charging by the project encourages your client to perceive your services in terms of the value you provide.

It also doesn’t hurt that your clients are likely to overestimate the amount of time they think you will need to do the work because they are thinking in terms how much time it would take them to do this work. You do become more efficient as you gain experience, so if you charge the same flat fee for a succession of similar projects, you are actually getting a pay raise with each project.

If you bill by the project, you must define the scope of your work in writing. This includes specifying reasonable expectations of the quality of data they deliver to you. When your client wants to add on, you need to renegotiate your fee.

You can probably get a good sense of the scope of a project after the first meeting. If you need to spend more time understanding all the requirements of a project, ask for that time, but put a cap (maybe five or 10 hours) on the amount of time you need to produce an accurate estimate of your fee.

The biggest risk to billing by the project is underestimating the amount of work required. It can’t hurt to ask for more money if you realize halfway through the project you’re in way over your head. Explain the unexpected developments that caused the extra work and hope for the best. You may just have to swallow your losses and try to estimate better in the future. Don’t cry too much. Unless all your estimates are too optimistic, the money lost on projects where you underestimate your effort will be more than compensated by the projects in which you finish earlier than you expected.

When billing by the project, you do not have to wait until the project is complete before getting paid. Negotiate for some of the money before you start the work (50% is not unheard of) and more as you complete key intermediate steps in the analysis.

There’s an ethical concern with billing by the hour that has a flipped ethical concern with billing by the project. If you bill by the hour, you might be tempted to pad the analysis with unnecessary work just to get a few extra bucks. If you bill by the project, you might be tempted to finish early by skipping some of the quality checks and assessments of assumptions your client deserves to have. Your clients will often not recognize when you are padding or cutting corners, so you must be honest with yourself about the proper amount of work to put in.

One final word. You will find clients who expect you to work for an outrageously small rate. Please say no. When statistical consultants work at substandard rates, it is bad for the entire profession. If money is not important to you, consider pro bono work instead with a group like Statistics without Borders.

I know a consultant–a programmer not a statistician–who charges $X/hour but gives a 50% discount to those who pay within a pre-specified number of days from the invoice date. Given that I did little independent consulting but still faced “you mean that you really expect me to pay” syndrome from 2 or 3 clients, it may make sense to give a prompt-payment discount, at least for some clients.

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